Bustling Venture Capital Market in China: Chance for YOU as a Start-up

China has become a major global economic powerhouse for the past decades. The growing economy through the emergence of an ever-expanding middle class, which plays a prominent role in consumption as well as the fast-paced development of the technological sectors, represent many opportunities for foreign startups wishing to establish themselves in the country.

In this article, we will analyze the major trends in terms of investment from Chinese investors and the means needed to attract their interest.

CHINA COULD DOMINATE GLOBAL VENTURE CAPITAL IN 2019

China is the second-largest venture capital market in the world and has seen VC fundraising more than double in the last two years.

• In 2016 China’s venture capital (VC) market exploded to US$50 billion — almost equal to the US.
• In 2017 KPMG reported that this number cooled to US$40 billion, but China still accounted for 26% of global VC investments.
• In April 2018 INSEAD released a report that predicted China’s VC market will exceed the US to dominate the world in 2019 or 2020.

• Zero2IPO Group recently estimated that China’s private equity and venture capital funds have 30 trillion Yuan of funds in the pipeline for the next two decades to invest in China’s new-economy sectors.
• China’s booming venture capital asset is being financed by supportive government guidance funds, cash-rich corporations, high-net-worth individuals, and serial entrepreneurs who are reinvesting their proceeds from China’s first wave of successful exits.

MAJOR PLAYERS IN CHINA’S VENTURE CAPITAL INDUSTRY

VC activity is more heavily concentrated in China than in the United States.

The three key players in the market are commonly referred to as BAT. BAT account for almost 50% of domestic VC investment volume compared to 5% in the US.

• Baidu – the internet conglomerate behind China’s largest search engine with the same name
• Alibaba – the online retail giant behind Taobao and Tmall, the largest retail marketplaces in the world
• Tencent – the gaming and social-media giant behind WeChat, the biggest social media platform in China with more than 1 billion users.

The leader in terms of the number and also the volume of investments is Tencent, which has invested over $60bn in over 350 companies since 2012.
There are other independent venture capital firms including established players from the US.

INVESTMENT PICKS – BASIC NEEDS AND CUTTING EDGE TECH

In terms of demand, basic consumption, especially for niche consumer groups such as infant mothers, will remain resilient to an economic slowdown.

Most VCs are also optimistic about the growth of the medical and healthcare sectors. Education and training are an industry that is recession proof.

Many VCs also expressed interest in life sciences and biotechnology.

There are specialized industry sectors being targeted by the Chinese government in Artificial Intelligence, Big Data, Cloud Computing and many other hi-tech and innovative industries where western companies have the expertise that is highly in demand.

ByteDance, the developer of the popular Tik Tok video clip app, raised $3 billion last year. © AP

In November 2018, President Xi Jinping announced that the Shanghai Stock Exchange will be launching a new Sci-Tech Innovation Board to “encourage small and medium-sized investors to participate in science and technology investment through public funds”.

Meanwhile, Sequoia Capital China is teaming up with a state-owned venture capital (VC) fund and e-commerce powerhouse JD.com to raise up to 40 billion yuan ($5.81 billion) for a new investment firm to focus on late-stage tech investments, sources said.

These new initiatives would further boost the development of tech sectors in China in competition with the US.

HOW TO ATTRACT CHINESE INVESTORS TO INVEST IN YOUR STARTUP?
THE NEED TO WORK ON YOUR reputation AS A KEY PART OF YOUR STRATEGY

When it comes to dealing with transactions of significant financial values, investors take no risk in their decisions and are meticulous in researching the companies that look interesting to them.

A strong presence on the Internet (eg: searchable on Baidu, or having huge followings on social media…) is very influential in proving that your business is running well and has achieved certain results.

You should embark on a digital strategy that will help you build and consolidate your image in the country as a part to forge profitable and lasting commercial relations with your interlocutors.

In China, the higher your online visibility is, the more quality your services seem to be!

1/ Increase visibility on Baidu by creating a Chinese, keyword-optimized website

Chinese Investors like Startups who have a Chinese website. It shows their commitment and understanding of this market. Indeed, your site is the showcase of your business and is one of the tools to arouse the interest of investors.

Your website has to be done in Mandarin- the local language and tailored in terms of design and content to serve specifically Chinese customers.

The site should keep the goal of optimization for Baidu (the national search engine) in mind and ideally be hosted by Chinese servers for better visibility on search results.

As a startup, you will have to explain clearly and precisely your mission and your objectives. The more information investors can find about your business, the more possibility that he will be interested in it.

After you create a Mandarin website, you need to start boosting its visibility. Baidu (known as the most popular search engine in China) is the place to start developing your reputation.

Make sure your website is optimized for the right keywords in order to drive your potential prospects there. This doesn’t mean stuffing your content with keywords. The production of quality content must always be ensured to push your site into the best search results.

Not appearing in the first page of a search result could reduce your chances of generating traffic for your site by 65%. An important tool for your startup!

2/ ePRs are essential to boost brand awareness and credibility

The press is mainly digital today. To acquire attention in China is often synonymous with to have good coverage by Chinese media. Appearing on prestigious media is a guarantee to gain some confidence on the side of investors.

Media world in China can be complex and greatly driven by relationships. An expert can help you navigate through the water and develop news/ content campaigns that generate results with the least cost.

Investors usually search for information on media such as Sohu, Ifang or News168.

3/ Get on Wechat to create and nurture relationships with followers and investors
It’s a red flag to own a Wechat account with no follower or no activity. On the other hand, your company can make a huge impression on investors with a robust and highly engaging Wechat page. Therefore, pay attention to your Wechat. This is the largest social media in China with more than 1 billion user account.

The majority of companies set up a professional account called “official account” on Wechat to publish information and interact with customers or clients. These official accounts help foster content sharing in a more direct and instant way, allowing investors to stay active and up-to-date.

Step 1:  SETUP AN OFFICIAL ACCOUNT
Setting up an official WeChat account will give your audience the feeling of having more direct contact with you. It will also allow potential investors to stay up-to-date with your business.

Step 2: ENHANCE COMMUNICATION
Establishing a WeChat account may seem a bit odd to Western entrepreneurs who still see social networks as a tool for entertainment or as a private space and not for something serious like business or investment. However, in China, an ultra-connected country, Wechat promotes trade and communication. Emails are not as popular as Wechat. Businesses add their clients and investors as Wechat friends and most of the communication can happen there, in a quick and constant way. Moreover, the QR Codes function directs people to your website.

4/ Work on your pitch for Chinese investors

The pitch plays a crucial role in proving to your investors the potentials of your project as well as prospective benefits for them. This art of persuasion requires great preparation beforehand to lend itself to exercise.

For this, here are some tips to follow (or not) for good preparation:

• Know your investors: learn about the person (s) you will persuade in order to adapt your strategy and your speech. Are they experts in this field? Do they have any particular like and dislike for an investment?
• Presenting about your strong social media achievements as a part of your pitch is pretty a straightforward and influential “weapon” to attract investors. They are aware of the importance of digital in China.
• Prepare a lively and animated presentation of your project to interest investors. Make your presentation “sexy” to make it appealing and simple to understand for your audience.

4C according to Slide At Work for the success of your pitch:

• Consistency: Constructing the script as a logical sequence
• Clarity: Orient the content to the specific concerns of your Chinese interlocutors
• Conciseness: Distinguishing the accessory from the essential
• Credibility: Illustrate and concretize with examples

CHINA IS AN ATTRACTIVE MARKET FOR TECH START-UPS
China is focusing on getting an edge in technologies and the Chinese government as well as its tech giants are sourcing around for exciting ventures to invest. However, succeeding in attracting Chinese investors requires a solid marketing strategy.

HOW CAN THE GENTLEMEN TEAM HELP YOU?

• Work on your reputation
• Maximize your visibility among Chinese Investors
• Help you to Improve your Pitch – Pragmatic Consulting
• Bring your Investor Leads
• Send your pitch to our Database of VC, PE and Business Angels in China

We have strong experience in helping start-ups attract investment from Chinese investors, so we are able to do that for you.

Do not hesitate to contact us for more information, and to receive our case studies.